Trade
finance is related to international trade.
Since secure trade finance depends on verifiable and secure tracking of physical risks and events in the chain between exporter and importer, the advent of new methodologies in the information systems world has allowed the development of risk mitigation models which have developed into new advanced finance models. This allows very low risk payment advances to exporters to be made, while preserving the importers normal payment credit terms and without burdening the importers balance sheet. As the world progresses towards more flexible, growth oriented funding sources post the global banking crisis, the demand for these new methodologies has increased dramatically among exporters, importers and banks.
While a seller (the exporter) can require the purchaser (an importer)
to prepay for goods shipped, the purchaser (importer) may wish to reduce
risk by requiring the seller to document the goods that have been shipped. Banks may
assist by providing various forms of support. For example, the importer's bank
may provide a letter of credit to the exporter (or the exporter's
bank) providing for payment upon presentation of certain documents, such as a bill
of lading. The exporter's bank may make a loan (by advancing funds) to the
exporter on the basis of the export contract.
Other forms of trade finance can include Documentary
collection, trade credit insurance, export factoring, and for
faiting. Some forms are specifically designed to supplement traditional
financing. In many countries, trade finance is often supported by
quasi-government entities known as export credit agencies that work
with commercial banks and other financial institutions.
Since secure trade finance depends on verifiable and secure tracking of physical risks and events in the chain between exporter and importer, the advent of new methodologies in the information systems world has allowed the development of risk mitigation models which have developed into new advanced finance models. This allows very low risk payment advances to exporters to be made, while preserving the importers normal payment credit terms and without burdening the importers balance sheet. As the world progresses towards more flexible, growth oriented funding sources post the global banking crisis, the demand for these new methodologies has increased dramatically among exporters, importers and banks.
Trade
finance refers to financing international trading transactions. In this
financing arrangement, the bank or other institution of the importer provides
for paying for goods imported on behalf of the importer.
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